5 reasons why BMW and Toyota declared the Green Truce

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Natural competitors BMW and Toyota are collaborating on lithium-ion battery research, hybrid technology, and diesel engine technology. Each has expertise the other needs and both want to speed up the curve for advanced batteries. In a joint announcement at the current Tokyo Motor Show, it was stated that BMW will supply small-car diesel engines to Toyota that helps Toyota sales in Europe, Toyota will provide BMW with hybrid engine know-how that helps BMW everywhere. Then, together, they’ll work on lithium-ion battery technology.

Seems crazy that the two competitors would team up? Here are the five reasons the two got together:

1. Advanced battery technology is a key to the future

The majority of cars will have some battery power within a generation. The mainstream car may have a smaller engine plus a battery pack and electric motor for economy and for performance. Yes, performance. An electric motor develops maximum thrust (torque) at 0 rpm, so it’s like a turbocharger only with a greener image. Pooled research and joint investments may hasten the progress in lithium-ion battery output by more than the couple percent a year.

BMW also has expertise in capacitor storage where huge capacitors that never wear out replace batteries for short bursts of power, for instance to accelerate onto the expressway. Flywheel technology (KERS) also has promise. This is the least-product specific part of the agreement but may turn out to be the most important. “We think that this collaboration will allow for development of next-generation batteries to be done faster and to a higher level,” said Takeshi Uchiyamada, Toyota’s executive vice-president.

2. Europe loves diesels, BMW knows diesels

Diesels make up more than half the market in Europe because they’re more efficient. Tax laws and emissions rules also favor diesel fuel over there. For Toyota to step up sales in Europe it needs more and better diesel engines and BMW is a master of diesel technology for engines small and large. You’ve probably ridden behind a BMW or Mercedes diesel and not known it because they don’t smoke and don’t make clattering diesel sounds. A turbo-diesel electric hybrid in the U.S. would have exceptional durability because diesel engines last longer, but they also have higher initial costs.

3. The world needs hybrids. Toyota knows hybrids

Toyota and Lexus have sold more than 3 million hybrids worldwide, especially the Toyota Prius, in the past 14 years and the pace is quickening: The first million Toyota hybrids took a decade to sell; the third million, just a year and a half. BMW wants in on Toyota’s hybrid secrets, not just how, but also how they do it so affordably. BMW sells hybrids, but they’re $50,000 and up. The super-rich may see 35 mpg hybrids as a nice way to save the glaciers, but most people think hybrids should be affordable to buy as well as run. Cutting costs lets BMW sell cars for less or or earn higher margins on its cars and stay profitable and independent.

4. Long-term survival for BMW

Conventional wisdom has it that fewer than a dozen automakers will survive into the future and size yields economies of scale. (Also dull cars, in some cases.) Toyota, GM, VW, Hyundai, and Ford all build at least 5 million vehicles a year. BMW builds 1.5 million BMWs, Minis, and Rolls-Royces a year and is one of the world’s most profitable automakers today. The family that has controlled BMW for more than 50 years says it wants BMW to stay independent, so BMW markets the reputations of its components such as engines to be a bigger company. Thus the engine sales to Toyota.

5. Technology sharing happens all the time

BMW, Daimler/Mercedes-Benz, Chrysler (when it was owned by Daimler), and GM collaborated on hybrid transmissions and their efforts are now in hybrid vehicles sold today. That was for basic research that was then modified for the characteristics each automaker wanted, such as performance in a BMW sedan or hauling capacity in a hybrid GM SUV. Toyota actually supplied Mini (owned by BMW) with a diesel engine a decade ago. Peugeot Citroen and BMW-Mini currently have a tech-sharing project for gasoline-electric vehicles that continues. None of these agreements have resulted in anti-trust concerns nor are they likely to.

In the tech industry, former Novell CEO Ray Noorda popularized the term coopetition (also called coopertition): Sometimes you’ll work with your competitor to grow the market for both of you. Still, it helps to be watchful (note Novell’s size today). Or as Woody Allen noted: The wolf will lie down with the lamb. But the lamb won’t get much sleep.

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Anonymous

Except there’s no mention of “Toyota will provide BMW with hybrid engine know-how” or sharing capacitor tech in the press releases. Either Toyota and its subsidiary Aisin will license/sell their e-CVT that lets a hybrid blend engine and motor power to BMW, or they won’t. BMW’s i8 and KERS experiments suggest they may instead use a through-the-road hybrid, with an electric motor on one axle for urban driving and a turbodiesel on the other for long-distance, combining the two for boosts of power and AWD.

Jon Allen

BMW and Toyota aren’t competitors. BMW exists in a completely different market segment significantly higher than Toyota: BMW builds cars for people who enjoy the act of driving; Toyota makes generic econo boxes that are terribly numb in every sense of the word, but extremely reliable and cheap to operate.
So knowing this, why would BMW want to make cheaper cars? Currently they exist in a rather unique position: premium, high end cars that don’t cost an arm and a leg thanks to relative economies of scale. There is a reason that japan’s luxury brands like Lexus or infiniti have to varying degrees attempted to mimic BMW/Mercedes/audi, not the other way around.

And what is this conventional wisdom that fewer than a dozen automakers will exist in the future? The market for cars is expanding rapidly, especially in the developing world, even in this economic climate: not conditions for consolidation. Cite your source please.

Come on guys, we expect better from you..

Anonymous

But BMW would be competing with Lexus, which in case you didn’t know is Toyota.

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Francis Javier Rodriguez-Merca

I think that after the WHO declaring diesel as a cancerogene BMW is the big winner here since its know how on a fuel that is considered a health risk will not represent the future. Europe is already starting to “un like” diesel with even government figures in countries such as France condemning it as nonviable fuel source. Guess Toyota got the rotten part of the deal here.

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